Opting out of SUI tax pools can help offset new costs encountered by nonprofits

February 5, 2014

Opting out of SUI tax pools can help offset new costs encountered by nonprofits

Nonprofits around the country are holding their breath to see if payment in lieu of tax programs will take hold in their areas. PILOT programs have gained steam on the east coast, according to MiBiz, and could represent a new budget hurdle for tax-exempt organizations.

Under the program, municipalities have the ability to send invoices and bills to nonprofit organizations, regardless of their tax status. Not all nonprofits have been treated equally under the legislation, with many states going after colleges and universities. In many areas, the new program is not a huge surprise.

The reason behind the program in most municipalities is that local governments are struggling to generate revenue so they can begin climbing out of the financial pits that were created during the recession. Massive unemployment and government cutbacks left many local governments in a tough situation.

Nonprofits must shore up budgets to prepare for new costs
Regardless of how nonprofit leaders feel about the legislation, it's another example of why they will need to continue to get creative with budgets and revenue. Many organizations are also feeling budget pressures and during a time when their services are needed most. Increased demand and costs coupled with falling revenue have created the perfect storm for many nonprofits.

Nonprofits can save on unemployment insurance
While the PILOT program represents a hardship for tax-exempt organizations, they are still extended one large cost-saving benefit – the ability to opt out of state UI tax pools. Nonprofits are exempt from federal taxes related to UI, but still must contribute for their state costs. Federal taxes cover most of the administrative costs of running unemployment offices while state taxes provide funding for claims.

For-profit businesses pay a tax every year regardless of their actual UI claim costs, nonprofits can become self-reimbursing employers, a designation under which they reimburse the state only for the actual amount that was paid out to former employees. This means that a nonprofit with no UI claims would have no costs.

The downside is that organizations which opt out can be responsible for a large cost if they see a sudden spike in UI claims and will not have money from the tax pool to help meet the obligation. For this reason, nonprofits that opt out should consider enrollment in a UI savings programs or bonded service program such as those offered by First Nonprofit Companies. Saving programs allow nonprofits to capture many of the benefits of being a self-reimbursing employer with much less risk.

There is a not a one-size-fits-all solution for self-reimbursing employers so it's important to get in touch with a nonprofit UI specialist that can explain how different funding options will save the most money while providing the greatest amount of coverage. Depending on their size, most nonprofits can find a more cost-effective option for meeting their SUI responsibility.

For information on how your organization can cost-effectively meet its unemployment insurance needs, contact First Nonprofit Companies at FNCUI@firstnonprofit.com or visit www.firstnonprofitcompanies.com.


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Working with Marshal Whittey at First Nonprofit has been a great experience. He handles our request as a priority and goes above and beyond to resolve any issues we have in a timely manner. Marshall follows through to the end and ensures our needs are met. He has been a great resource for LSC and our “go to” for any tax questions we may have. With LSC transitioning several facilities into one federal tax identification number, First Nonprofit was able to assist and provide guidance with best practices resolving claims to each entity. Additionally First Nonprofit provided knowledge (information materials) and one on one training to HRS group with best practices to handle claims state adjudicated, fraudulent claims, and appeals. And processing information in the First Nonprofit [unemployment claims] system allows for timely information can be collected.

Lutheran Services Carolinas, Salisbury, NC

My experience with FNP has been wonderful. Unemployment in general is quite confusing and FNP has simplified the process for us. Everyone we have reached out to or worked with has been very helpful and follows up to be sure we understand the information. I am so happy we made the switch to FNP!

Stone Valley Community Charter School, Huntingdon, PA

First Nonprofit smoothed the unemployment perils for our organization during Covid. Without the ability to cap our UI exposure, we would not have been able to weather the storm. The program worked perfectly and we have come out of the pandemic ready to forge on. Thanks FNP!

Jewish Silicon Valley, Los Gatos, CA

My experience with the FNP has been fantastic. The idea of setting funds aside for the unemployment tax liability is a bedrock for nonprofit organizations like mine, namely ASHBA; what is even more advantageous is having the FNP as a custodian of those funds. 100% recommended!

American Saddlebred Horse & Breeders Association, Inc., Lexington, KY

I would like to comment on my experience with FNP….to date our District has saved $1,000’s of dollars by being enrolled in the First Nonprofit program. My only regret is that we did not know about this method of paying unemployment tax years ago….as I had figured about five years

ago, had we enrolled 15-20 years ago, we could have saved our small school district upwards of $500,000 in payments to IDES. Also we would have had a pretty hefty sum of money in our Reserve Account. Thankfully I attended a workshop hosted by First Nonprofit back in 2015 which got the ball rolling!

Beardstown Community Unit School District 15, Beardstown, IL

I have worked with the First Non-Profit Team for many years, and I appreciate the quick response and care that Cecilia and the team provides anytime I have questions. While there are other providers that may provide like services, First Nonprofit will always be my first choice! I appreciate you!

Innovative Services, Inc., Green Bay, WI

First Nonprofit has been easy to work with and makes the administrative process easier and smoother. We enjoy working with you.

Visually Impaired Preschool Services, Louisville, KY

Luckily for us, our interactions regarding any issues with staffing has been very minimal! I can say that all other interactions with regards to billing, 941 reporting, etc. have been extremely pleasant, accommodating and easy to work with. Kim Ghanayem is always prompt, professional and friendly. Thank you so much!

Neurologic Music Therapy Services of Arizona, Phoenix, AZ